TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Affordable Care Act: The Number of Taxpayers Filing Tanning Excise Tax
Returns Is Lower Than Expected

September 22, 2011

Reference Number:2011-40-115

This report has cleared the Treasury
Inspector General for Tax Administration disclosure review process and
information determined to be restricted from public release has been redacted
from this document.

AFFORDABLE CARE ACT: THE NUMBER OF TAXPAYERS FILING TANNING EXCISE TAX
RETURNS IS LOWER THAN EXPECTED

Highlights

Final
Report issued on September 22, 2011

Highlights of Reference Number:2011-40-115 to the Internal Revenue Service Commissioners for the Small
Business/Self-Employed Division and the Wage and Investment Division.

IMPACT ON TAXPAYERS

The Patient Protection and Affordable Care Act
and the Health Care and Education Reconciliation Act were signed into law in March
2010.This legislation contains revenue
provisions anticipated to generate $438 billion in the form of new taxes, fees,
and penalties.One of these new taxes is
an excise tax on indoor tanning services (tanning tax) which became effective on July 1, 2010, and is 10
percent of the amount paid for tanning services.The tax is paid by the person receiving the
service and is collected by the service provider.The tanning tax is due and payable quarterly.

WHY TIGTA DID THE AUDIT

This
audit was initiated because the tanning tax was a new provision in the law that
became effective soon after passage, which increased the potential risks
involved with implementation.It has
been estimated that there could be about 25,000 tanning businesses
affected by the tax.The objective of
our audit was to determine whether the Internal Revenue Service (IRS)
effectively implemented this tax.

WHAT TIGTA FOUND

The IRS developed an outreach plan, updated the excise
tax form and instructions, and made preparations for receiving and processing
tax returns with the tax.The IRS also
developed a plan for dealing with noncompliance, including initiating audits
and issuing notices to taxpayers who may potentially owe the tax.

The number of taxpayers filing tanning
services excise tax returns is much lower than expected.According to IRS documents, in April 2010,
the Indoor Tanning Association estimated that 25,000 businesses were providing
indoor tanning services.However, the actual
number of businesses liable for the tax has been difficult to determine with
any degree of accuracy.Identifying
these taxpayers has been one of the more challenging tasks the IRS has faced
when implementing this provision. For
the first three applicable quarters, the number of Federal excise tax forms
reporting tanning taxes has averaged approximately 10,300.

The IRS could have taken more timely actions to
contact taxpayers who may owe the tax.By the time notices were issued, tanning excise tax returns had been due
for three quarters.Late filing of these
returns would result in the taxpayer owing the unpaid tax, plus interest and
penalties.In addition, the information
used to identify these taxpayers appears incomplete.Furthermore, TIGTA advised the IRS that the
notice did not contain some pertinent information.The IRS added this information before mailing.

Finally, the publication containing information about
excise tax requirements was not updated until more than a year had passed since
the provision became effective.

WHAT TIGTA RECOMMENDED

TIGTA
recommended that the IRS perform further analyses of the data sources used,
including records with incomplete address information, to determine whether a
large number of tanning businesses were not identified, monitor the results
from the notice mailing to determine whether additional data sources are
warranted, and update the excise tax publication to include tanning tax information.

In their response to the
report, IRS officials agreed with our recommendations.The IRS plans to perform the analysis
suggested, monitor the results of the notice mailing, and consider additional
actions based on the results.The excise
tax publication was revised in July 2011 to include tanning tax information.

This report presents the results of our review to determine
whether the Internal Revenue Service (IRS) effectively implemented the excise
tax on the indoor tanning services provision of the Patient Protection and Affordable
Care Act[1]
legislation.This audit is included in
our Fiscal Year 2011 Annual Audit Plan and addresses the major management
challenge of Implementing Health Care and Other Tax Law Changes.

Management’s complete response to the draft report is
included in Appendix V.

Copies of
this report are also being sent to the IRS managers affected by the report
recommendations.Please contact me at
(202) 622-6510 if you have questions or Michael E. McKenney, Assistant
Inspector General for Audit (Returns Processing and Account Services), at (202)
622-5916.

On March 23, 2010, the Patient Protection and Affordable
Care Act[2]
(Affordable Care Act) was signed into law.Along with amendments in the Health Care and Education Reconciliation
Act of 2010,[3]
which was signed on March 30, 2010, this legislation contains revenue
provisions anticipated to generate $438 billion[4]
in the form of new taxes, fees, and penalties.One of these new taxes is an excise tax on indoor tanning services
(referred to hereafter as the tanning tax).[5]

Excise taxes are levied on a wide variety of goods,
services, and activities.They may be imposed
at the time of sale by a manufacturer or retailer or at the time a service is
rendered to a consumer.Many of the taxes
are set aside into trust funds earmarked for related capital projects, such as
highway and airport improvements.Excise
taxes are independent of income taxes and are reported separately.

This new excise tax applies to
indoor tanning services paid for on or after July 1, 2010, and is 10 percent of
the amount paid for the tanning services.Indoor tanning services are defined as services using ultraviolet lamps
to induce skin tanning.There are other services
provided by tanning salons that are excluded from the tanning tax.It does not apply to ‘spray’ tans or topical
creams or lotions.In addition, it does
not apply to phototherapy services performed by licensed medical professionals,
during which individuals are exposed to light for the treatment of certain
medical conditions.Tanning services are
not taxable when provided by qualified physical fitness facilities (such as a
workout facility or gym).The fitness
facility must meet various tests to be exempt.

Liability for the tax arises at
the time of payment for services, and the tax is collected by the service
provider from the person paying for the indoor tanning services.The tax is then reported and paid to the
Internal Revenue Service (IRS) using the Quarterly Federal Excise Tax Return
(Form 720).Because the tanning tax
became effective on July 1, 2010, the end of the first quarterly period was
September 30, 2010.The due date for
these quarterly returns is generally 1 month after the end of the reporting
period, or October 31, 2010, for the first quarter the tax was required to be
reported.The return can be filed early
if the entity is going out of business. An Employer Identification Number is required
to file these returns.

This review was performed at the Fresno Campus[6]
in Fresno, California, during the period September 2010 through June 2011.It included a review of Forms 720 filed
nationwide and discussions with IRS personnel assigned to the Small Business/Self-Employed
Division Headquarters in Lanham, Maryland, and the Wage and Investment Division
Headquarters in Atlanta, Georgia. We
conducted this performance audit in accordance with generally accepted
government auditing standards.Those
standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objective.We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objective. Detailed information on our audit objective,
scope, and methodology is presented in Appendix I.Major contributors to the report are listed
in Appendix II.

Because the tanning tax went into effect soon after the law
was signed (approximately 3 months after enactment),[7]
it was imperative that the IRS quickly prepare for its implementation.The IRS assessed the provision and determined
what overall actions were needed, broke them down into specific action items,
and tracked the status of the items in a computer system dedicated to
implementation of new laws. These action
items and the general status of the implementation of the various Affordable Care
Act provisions were monitored by an Executive Steering Committee, which met
weekly.

The IRS developed an outreach plan for taxpayers who may owe the tax

As part of the implementation of the tanning tax, the IRS
developed an outreach plan.Because the
tax was aimed at a specific taxpayer population, the IRS was able to target the
associated outreach accordingly.Information
regarding the new filing requirements was disseminated in many different forms,
including:

Adding information to
the IRS web site (www.IRS.gov).

Hosting live webinars
and uploading videos on the YouTube web site[8]
(www.youtube.com).

Outreach to industry
associations.

Contacting State licensing
bureaus.

Issuing electronic
bulletins to tax professionals.

Giving seminars at the
Nationwide Tax Forums.

Forms and instructions were updated accurately and timely to assist
taxpayers with filing

Although general outreach related to the tanning tax was
important, it was also vital to update the actual forms and instructions
required to report the tax.Accordingly,
the IRS revised Form 720 and the associated instructions to reflect the
tax.These revisions included an
additional line added to the Form 720 and a paragraph describing the tax in the
‘What’s New’ section on the first page of the instructions.The revised Form 720 instructions also
included three paragraphs devoted to the tanning tax (see excerpt, right).This information accurately reflected the
statute and regulations and appeared sufficient to enable a taxpayer to file an
accurate return.

Picture was removed
due to its size.To
see the picture, please go to the Adobe PDF version of the report on the TIGTA
Public Web Page.

The revisions were completed in July 2010, which was early
enough for taxpayers to obtain them for information prior to filing.While the tax became effective July 1, the
first returns were not due until October 2010.Taxpayers could have filed earlier if they were going out of
business.However, there would likely have
been very few entities that went out of business in the first few weeks of July
after the tax went into effect and before the revised Form 720 and associated
instructions were updated.

There was a relatively short time period to prepare for
receipt and processing of returns reporting the tanning tax.Accordingly, the IRS had to immediately
update the computer systems used for processing tax returns.

The IRS receives both paper and electronically transmitted
returns. While the basic processing of
these returns is similar, there are different computer systems required to accomplish
this.The IRS successfully updated these
computer systems to enable both types of returns to be accepted and processed
timely.In general, the systems had to
be updated to include a new abstract code for the tanning tax, which is a
unique number assigned to each of the excise taxes.We reviewed documentation for the electronic
return processing system that accepts and validates electronic return
information and determined that the new abstract code had been added to the system.

In order to verify that the paper return processing system
was updated, we reviewed a sample of returns reporting the tanning tax and
determined whether they were being processed accurately.Because we wanted to identify potential
systemic problems, we selected a judgmental sample of 24 Forms 720 filed with
the tanning tax that were processed through October 31, 2010.For each return, we matched certain
information on the tax return against that which posted to the taxpayer’s
account.This information included
business name and address information as well as the reported tax amount.We did not identify any issues or
discrepancies.

According to IRS
documents, in April 2010 the Indoor Tanning Association estimated that 25,000
businesses were providing indoor tanning services, including approximately 15,000
stand-alone tanning salons and approximately 10,000 other businesses that offer
tanning services, such as spas, health clubs, and beauty salons.[9]Prior
to the enactment of the tanning tax provision, the number of excise tax returns
filed was approximately 25,000 per quarter, so it
appeared this new tax had the potential to double the number of Forms 720
filed.[10]However, the actual number of businesses liable for the tax has been
difficult to determine with any degree of accuracy; therefore, this estimate
should be used with caution.Identifying
these taxpayers has been one of the more challenging tasks the IRS has faced when
implementing this provision.

However, if this estimate is used as a general baseline, it is
apparent that compliance with the provision is much lower than expected.For the first three applicable quarters, the
number of Forms 720 reporting tanning taxes has averaged close to 10,300.

The Congressional Joint Committee on Taxation estimated this
tax would raise less than $50 million in the last 3 months of Fiscal
Year 2010 and raise $200 million for Fiscal Year 2011.However, as indicated above, the returns and
associated receipts have been lower than expected, so the amount projected for
Fiscal
Year 2011 may not be reached.However,
receipts could increase over time as more taxpayers become aware of the tax and
come into compliance.

The IRS made plans to
address compliance issues, but more timely action was needed

Although
most taxpayers voluntarily pay the taxes that are due by law, the IRS has to
have a plan to deal with those who do not.Two primary forms of noncompliance include underreporting (not reporting
one’s full tax liability on a timely filed return), and nonfiling (not filing
required returns on time and not paying the full amount of tax that should have
been shown on the required return). To
effectively administer the tax code, the IRS has to take specific actions to
address these situations.In the case of
the tanning tax, this is complicated by the fact that it is a new tax, so some
taxpayers may not be aware of their obligations.To illustrate this further, an IRS document
describing compliance challenges states, “The tax is new and unusual for this
industry, which has never experienced the imposition of a Federal excise tax on
tanning services, and thus the overwhelming majority have
never filed an excise tax return.”[11]

To meet these challenges, the IRS developed a compliance
plan that addresses both underreporting and nonfiling.To obtain information pertaining to
underreporting, the IRS plans to audit a number of excise tax returns reporting
the tanning tax.Information from these
audits will enable the IRS to refine its methods to identify and address
underreporting.

With regard to nonfiling, the IRS recognized that some
taxpayers who had not filed required returns may have simply been unaware of
the new tax rather than willfully ignoring the law.Accordingly, on June 2, 2011, the IRS issued
notices to approximately 14,000 taxpayers who were identified through various
data sources as potentially owing the tax but had not filed a Form 720
during the third or fourth quarters of Calendar Year 2010.These notices informed the taxpayer that it
appeared they may owe the tax, provided background information, and then asked
for a response as to why the taxpayer believes they are not liable.An example of this notice is provided in
Appendix IV.Although we agree with this
approach in general, we believe it should have been taken sooner. Because
the tanning tax was a brand new tax imposed on a group of taxpayers with no
previous experience with excise taxes, it was imperative that the IRS attempt
to inform taxpayers of their filing responsibilities and bring them into
compliance in a timely manner.

Initially, the IRS researched ways to identify these
taxpayers using information available internally.One source, the North American Industry Classification
System (NAICS),[12]
is a code used to identify industry segments.However, this code is not required to be provided on filed tax returns,
and further research indicated it could not be relied upon.Furthermore, broad searches by business name
were not deemed effective because many of these businesses do not have ‘tan’ or
‘tanning’ in their name.Accordingly, as
early as April 2010, the IRS was planning to contact State governments for
tanning data.However, obtaining and formatting data from the two external sources selected
(State licensing bureau data and a commercial business listing) was not completed
until May 2011, more than 1 year later.

There were various
reasons for this delay.The IRS Excise
Tax Office devoted limited resources to the effort. Only one full-time employee performed the bulk
of the data manipulation (although other employees assisted at various stages).[13]In
addition, there was a considerable amount of time needed to obtain and format
data from 18 different State licensing bureaus, although this should have been
anticipated by the IRS.Moreover, the
commercial business listing was always available and could have been obtained
and utilized earlier in the process.

By the time the combined
data were used to issue notices to potential nonfilers in early June 2011, the
due dates for three quarters of returns had passed.Taxpayers who owed the tanning tax and were
not aware of the filing requirement would have then had three delinquent
returns due, along with the associated tax, interest, and penalties.In addition, if the taxpayers had not been
collecting the tax from their customers, they would also owe the tax
out-of-pocket, possibly affecting the viability of their business.

The data used to identify nonfilers appear to be incomplete

As indicated above,
the IRS obtained external data from two sources, State licensing bureaus and a
commercial business listing.The steps
the IRS took to manipulate and format the data were logical and appropriate and
included matching the databases against information on IRS computers to obtain
the Employer Identification Number for each taxpayer, as well as eliminating duplicates.However, the end product appears to be
missing many tanning businesses:

·After
the various data manipulation steps were completed, the result was
approximately 19,000[14] unique taxpayers with potential tanning
businesses, well below the 25,000 tanning businesses estimated by the Indoor
Tanning Association.

·Approximately
7,000 of the 10,000 taxpayers (70 percent) who had filed tax returns reporting
the tanning tax in the third or fourth quarters of Calendar Year 2010 did not
appear in the externally obtained data.

·Notices
were not mailed to approximately 2,000 taxpayers identified by these data
sources due to incomplete or inaccurate address information.

The IRS indicated that
obtaining external industry data and mailing notices was only the first step in
a continuing effort to identify nonfilers and bring them into compliance, and
the data were not expected to contain the full population of taxpayers
potentially owing the tanning tax.However, it appears more could be done to determine why so many taxpayers
were not included in the initial external data.Depending on the results of the notice mailing, obtaining data from
other sources may be warranted.

Recommendation
1:Perform further analyses of the data sources
used, including the records with incomplete address information, and determine whether
a large number of tanning businesses were not identified.

Management’s
Response: IRS management agreed with this recommendation and will perform
the analysis suggested.

Recommendation 2:Monitor the
results from the notices sent to taxpayers who could potentially owe the tanning
tax and, if results warrant, consider obtaining additional data sources for compliance
use.

Management’s
Response: IRS management agreed with this recommendation and
indicated that this was the intent of the notice program the IRS
developed. The IRS will consider
additional actions according to the results.

As discussed previously, the IRS provided tanning tax
information to taxpayers through a wide variety of methods.However, a significant publication related to
excise taxes was delayed for a long period of time, and the notice that was
issued to taxpayers required improvement.

The publication with excise tax information was not updated at the
same time as Form 720 and its instructions

More than 1 year
after the passage of the legislation providing for the tanning tax, Excise
Taxes (Publication 510) had not been updated to include tanning tax information.The updated Publication 510 was finally
issued in July 2011.

Information should
be provided to taxpayers in a timely manner in order to assist them with
meeting their tax obligations.This is
especially true of new taxes imposed on a unique population of taxpayers who historically
have not had to pay excise taxes and who may not have any experience with them.

One contributing
factor for the delay was that the IRS waited until Congress passed legislation
in late Calendar Year 2010 affecting other excise tax credits and the IRS did
not want to have to update the publication twice in a relatively short period
of time.However, the publication was
not updated until July 2011, more than 6 months after the passage of the other
legislation.The IRS also stated that this
publication does not have a specified update schedule like most other
publications (e.g., annually) and that it is a lower priority compared to
updating forms and instructions.

Because this
publication did not contain current information, taxpayers could not use it as
a source of information for the proper reporting of this new tax, even though
more than a year had passed since its enactment.Therefore, a taxpayer who consulted the
publication for information may have reached the wrong conclusion related to
whether the tax is applicable.

The notice to be issued to potential nonfilers did not contain
pertinent information

The notice to be issued
to potential nonfilers did not contain pertinent information regarding the
possible exemptions to the tax.It did
not include information about the qualified physical fitness facility exemption
allowed by IRS regulations.This notice
is intended as a compliance tool to encourage taxpayers to file (if required)
or to enable the IRS to determine that the taxpayer is not subject to the
tax.To serve this purpose, it should
contain sufficient information to enable the taxpayer to make this
determination with minimum burden.This
would include providing an overview of the most important aspects of the law.We could not specifically determine why the
IRS did not include all the important tax information in the notice.It appears that the IRS relied upon references
to other specific information sources, such as the Form 720 instructions and the
IRS web site, to sufficiently inform taxpayers about the tax.

Some physical
fitness facilities offer tanning services and would be exempt from the
tax.Providing specific information
regarding this exemption would enable taxpayers to resolve the issue more
effectively and with minimum burden.

We reported our
concerns to the IRS and it took immediate corrective action.The draft notice was revised in response to
our concerns.Information related to the
qualified physical fitness facility exemption was included in the background
information, and a specific response item in the questionnaire portion of the
notice was added to indicate whether the taxpayer was claiming this
exemption.We consider this revision
sufficient to address our concerns.

Recommendation

Recommendation 3:The Commissioner,
Wage and Investment Division, should ensure that Publication 510 is updated to
include information related to the excise tax on indoor tanning services.

Management’s Response:
IRS management agreed with this
recommendation and has already revised Publication 510, Excise Taxes, to
include information concerning the Indoor Tanning Tax as of July 15, 2011.

I.Determined whether adequate preparations were made to
ensure affected service providers were notified of the tanning tax and its
filing requirements.

A.Assessed
the adequacy of actions taken to identify the service provider population
affected by the tanning tax.

1.
Reviewed
the effectiveness of IRS actions to identify affected service providers.

2.
Determined
whether we could identify the population using tax information available to the
Treasury Inspector General for Tax Administration and any other data sources.

3.
Identified
what data files and fields were available (name, NAICS code, etc.) and if they could
be used to identify affected taxpayers.

4.
Determined
whether any actions were taken to mark the accounts of service providers
subject to the tanning tax.We determined
whether a specific NAICS code, or other type of indicator, could be implemented
specific to tanning salons.

B.Reviewed
the feasibility of the IRS communicating the new filing requirements directly to
the population of affected service providers.

1.
Reviewed
the information used to make the decision to not communicate directly with
affected service providers during the initial implementation of the action plan
and determined whether it justified this decision.

2.
Determined
whether a mass-mailed postcard would be feasible to inform the affected service
providers of filing requirements.

C.Assessed
the timeliness and accuracy of other outreach efforts related to the tanning tax.

1.
Obtained
a copy of the overall outreach plan.

2.
Performed
a cursory review of each type of outreach effort in the plan for adequacy.

3.
Analyzed
the plan and determined whether any outreach opportunities were missed in the
plan.

D.Determined
whether forms, instructions, and publications related to the tanning tax were
updated adequately and timely.

1.
Identified
which forms, instructions, and publications were affected by the tax.

2.
Reviewed
each for the adequacy of the information in relation to the statute and regulations
and to determine whether they were updated in a timely fashion.

3.
Determined
the cause for why items were not updated timely and the potential effect on taxpayers.

II.Determined whether the IRS adequately prepared for the
processing of tax returns reporting the tanning tax and whether it adequately
monitored the actual receipts and processing of these returns.

A.Determined
whether the IRS updated the processing systems for paper and electronic tax
returns so that it could accept and process returns reporting the new tax.We performed a cursory review of the actions
taken to update these systems.

1.
Using
data obtained in step II.C.3, identified a judgmental
sample of 24 returns reporting the tanning tax[16]
that were processed during the first 3 weeks of October 2010.These returns were selected from a total of
117 returns processed during this period.

2.
Matched
the entity and tax information on the sample returns against the posted data.

C.Determined
whether the IRS adequately planned for the increase in returns and whether it timely
monitored the volume of returns filed reporting the tanning tax.

1.
Held
discussions with IRS Excise Tax Program officials to determine what planning
assumptions were made regarding the volume expected and what additional
resources were committed.

2.
Held
discussions with IRS Excise Tax Program officials regarding what steps were
taken to monitor the volumes of incoming returns, and obtained copies of the
weekly volume reports.

3.
Identified
and downloaded return information from Forms 720 posted each week with Abstract
Code 140[17]using data obtained from the Treasury Inspector
General for Tax Administration Data Center Warehouse.[18]We validated the accuracy of the data by
reviewing the data for discrepancies and formatting errors.

4.
Matched
our data against IRS production reports showing total receipts ofForm
720 with the tanning tax and reviewed for discrepancies.

III.Determined whether the IRS developed an adequate plan
to bring nonfilers into compliance with the law.

1.
Obtained
and reviewed the Compliance Initiative Project information to determine if it will
effectively bring service providers into compliance.

2.
Obtained
and reviewed the notice to be issued to potential nonfilers to determine if it
would be effective for educating service providers.

B.Identified
the population the IRS used for the compliance actions described above and if
it appeared adequate for this purpose.

Internal controls methodology

Internal controls relate to management’s
plans, methods, and procedures used to meet their mission, goals, and
objectives.Internal controls include
the processes and procedures for planning, organizing, directing, and controlling
program operations.They include the
systems for measuring, reporting, and monitoring program performance.We determined the following internal controls
were relevant to our audit objective:the
IRS’s planning and outreach efforts to ensure the tanning tax was collected and
the associated tax returns were accurately and timely filed, actions to ensure
these returns were able to be accepted and processed, and actions taken to
ensure taxpayers are filing required returns and paying the correct amount of
tax.

Thank you for
the opportunity to review your draft report. We appreciate your acknowledgement
of the efforts we have already made to timely implement this provision. These
include developing a comprehensive implementation plan; revising forms and
instructions; and delivering education and outreach. We also developed a risk-based
compliance strategy and trained IRS personnel. As a result, we were prepared
for the initial filing year challenges associated with the new excise tax on indoor
tanning services.

As your
report indicates, this is a brand new provision and there is no existing authoritative
list of businesses that are required to pay this tax. Instead, the IRS gathered
a number of data sources to estimate the total population of affected businesses,
including state licensing bureau data and commercial business lists. We have
compared the list of taxpayers who have already filed returns with the broader
list that we have collected, and have sent explanatory notices to businesses
who have not yet filed. Once this analysis is complete, we will have a better
sense of how many of the businesses who have not yet filed are actually subject
to this new excise tax.

If you have
any questions, please contact me, or a member of your staff may contact John H.
Imhoff, Director, Specialty Programs, Small Business/Self-Employed Division at (215) 861-1176.

Attachment

Attachment

RECOMMENDATION 1:

The Director,
SB/SE Specialty Programs should perform further analyses of the data sources used, including the records with
incomplete address information, and determine whether a large portion of
tanning businesses was not identified.

CORRECTIVE ACTION:

We concur
with this recommendation and perform the analysis suggested.

We will monitor this action as part of our internal management control
process.

RECOMMENDATION 2:

The Director,
SB/SE Specialty Programs should monitor the results from the notices sent to
taxpayers that could potentially owe the tanning tax and, if results warrant, consider obtaining additional data sources
for compliance use.

CORRECTIVE ACTION:

This was the
intent of the notice program that the IRS developed. The IRS will consider additional actions according to the results.

[6]The data processing arm of the IRS.The campuses process paper and electronic
submissions, correct errors, and forward data to the Computing Centers for
analysis and posting to taxpayer accounts.

[7] The law
was enacted on March 23, 2010, and the Tanning Tax provision became effective
on July 1, 2010.As of this date,
service providers were required to begin collecting the tax.

[8] YouTube
is a video-sharing web site on which users can upload, share, and view videos.

[9] In a
July 11, 2011, Bloomberg.com article, the Indoor Tanning Association stated
that due to the weak economy and the tanning tax, the number of tanning salons
in the United States had decreased.

[10] The
estimated number of indoor tanning businesses does not necessarily equate to
the required number of filers.A
business entity with multiple tanning locations may only be required to file
one excise tax return.

[12] The
NAICS is used by business and government to classify business establishments
according to type of economic activity.The NAICS numbering system employs a code with up to six digits to
designate specific industries.

[13]
According to the IRS, two Computer Audit Specialists, a Program Analyst, and a
Computer Assistant provided support and assistance.

[14] The
commercial business listing contained approximately 21,000 tanning
businesses.After eliminating duplicates,
there were approximately 19,000 unique taxpayers, approximately 2,000 of which
had incomplete or inaccurate address information, and approximately 3,000 of
which had filed tax returns.The balance of approximately 14,000 taxpayers had not filed a Form 720
reporting the tanning tax and were sent notices.

[16]
Requested 48 of the first 117 Quarterly Federal Excise Tax Returns (Form 720)
filed for the third quarter (July 1, 2010, thru September 30, 2010) and
reviewed the first 24 returns received.

[17]An
abstract code is a unique number assigned to each of the excise taxes.Abstract Code 140 identifies the indoor
tanning excise tax.

[18]The Data Center Warehouse is a collection of IRS
databases containing various types of taxpayer account information that is
maintained by the Treasury Inspector General for Tax Administration for the
purpose of analyzing data for ongoing audits.